Aruba, April 10, 2013 - The Federal Reserve is making a better job of it than the European Central Bank

THE low-rate world was not meant to last. In 2008-09, when central banks slashed short-term rates close to zero and started buying bonds to push down longer-term rates, everyone assumed these extraordinary measures would soon be unwound as economies recovered.

But the extraordinary has become the norm. America’s Federal Reserve is still printing money to buy bonds and has made it clear that it will not raise short-term rates at least until unemployment, now close to 8%, falls to 6.5%. At the Bank of Japan Haruhiko Kuroda, the new governor appointed by the stimulus-minded prime minister, Shinzo Abe, this week announced a new phase of monetary easing to hit an inflation target of 2%: bond purchases will be stepped up to double the country’s monetary base. The Bank of England’s mandate has been tweaked to allow rates to stay lower longer. Even the European Central Bank (ECB) may be inching towards greater boldness. The message from the rich world’s central banks is clear: the era of ultra-loose monetary policy is here to stay.

That has had a huge effect on financial markets. Japan’s Nikkei index is up by 40% since Mr Abe promised bold stimulus in November. America’s S&P 500 index and the Dow Jones industrial average are both at record levels. Frothiness is back as investors search for higher returns, whether in junk bonds, African government debt or the new “structured credit” products dreamt up by the same investment banks that sliced up mortgages in the bubble years (see article).

Unfortunately, the effect on output has been more muted. America’s GDP is showing signs of accelerating. But Europe’s economies are flat or shrinking. Overall, rich-world growth is likely to be barely over 1% in 2013, little better than in 2012.